It’s official, investors are coining the third quarter a quality quarter thanks to the likes of Caterpillar (CAT) and Goldman Sachs (GS). Two vastly different companies, yet both managed to post better than expected results, especially on the revenue side. “It's not just because companies are beating on the bottom line, it's because for the most part they are beating on the top line. That is, revenues are coming in better than expected." says Scott Nations, president and chief investment officer, of NationsShares.
Revenue growth, or the top line, better illustrates how a company is performing while profits, or bottom line growth, can be massaged by cost cutting and other initiatives.
Thus far, over 57% of the S&P 500 (^GSPC) companies have reported Q3 earnings. 59% of those have exceeded revenue goals and 78% have bested profit goals according to FactSet.
Results from Apple (AAPL), United Parcel Service (UPS) and AutoNation (AN) have helped drive the S&P 500 up 7% year to date even after a rough patch earlier this month. The Nasdaq Composite (^IXIC) is up 9% for good measure. The Dow Jones Industrial Average (^DJI) is trailing with a 2.6% rise in part due to disappointing quarters from Dow members IBM (IBM) and Merck (MRK).
Despite better than expected results, many CEOs remain optimistically cautious when it comes to future prospects observes Nations. “Companies are actually being pretty conservative with their guidance as you would expect. They’ve done fairly well this year but they don’t want to get ahead of their skis.”
Whether its falling oil prices, the economic slump in the Eurozone or fluctuations in the dollar (UUP) there are plenty of reasons for CEOs to remain on alert.